DEFINITION of Mechanic's Lien
A mechanic’s lien is a guarantee of payment to builders, contractors and construction firms that build or repair structures. Mechanic's liens also extend to suppliers of materials and subcontractors and cover building repairs as well. The lien ensures that the workmen are paid before anyone else in the event of liquidation.
A mechanic's lien is also known as "artisans' liens" or "materialmen's liens."
BREAKING DOWN Mechanic's Lien
Mechanic's liens are often necessary to secure construction help on a project. The lien stays in force until the project is finished and all construction personnel have been paid.
From an investment standpoint, it is important to note that mechanic's liens generally have a higher priority than other forms of debt. This priority determines the hierarchy of claims in the event of foreclosure or repossession.
How a Mechanic's Lien Can Be Enforced
A mechanic’s lien can be used to address both unpaid labor and material costs related to a construction project. Each state has its own laws governing the specific types of costs that may be included when filing a mechanic’s liens. There may be time constraints and statutes of limitations for filing a mechanic’s lien based on when the work was performed or when construction was completed.
A contractor might file a mechanic’s lien if a property owner reneges on paying a portion of the amount due for the work performed. A subcontractor could likewise file a mechanic’s lien if a primary contractor fails to make proper payment for their work and materials.
For example, a contractor may hire a subcontractor to deliver and pour concrete to finish a portion of a construction project. The subcontractor has an agreement with the contractor but not the property owner. The subcontractor can file a mechanic’s lien if the contractor fails to pay for the concrete they provided for the project. The lien would be against the property, which would force the owner to get involved. A separate breach of contract lawsuit could be filed directly against the delinquent contractor.
This tactic would engage the property owner to also apply pressure to the contractor who has not paid the subcontractor.
The owner of a property may feel compelled to resolve a mechanic’s lien as soon as possible because a property typically cannot be sold while a lien is in effect. Any potential buyer of the property would see there is a lien in place when they perform a title search. Any new owner would be held responsible for addressing liens attached to the property.
Mechanic’s liens were not named after automobile mechanics seeking payment for repair services. The term traces its roots back to the 18th century when various types of laborers were often referred to as "mechanics."